Written by Jennifer Kent, Senior Analyst, and Harry Wang, Director, Health and Mobile Product Research, Parks Associates.
Machine-to-machine (M2M) communications—essentially “smart” networked devices talking to each other—are undergoing a period of fundamental change and significant growth.
Traditionally, a few enterprise use cases, such as fleet management and asset tracking, dominated M2M deployments. Declining sensor and chipset costs, along with cheaper network access fees, have expanded the viability of M2M communications to new industry applications. As a result, manufacturers are increasingly embedding a wider range of products with wireless connectivity.
Mobile operators and key players in industries as diverse as automotive, oil and gas, and healthcare all have a strong interest in pursuing this growing market. Enterprise solutions will continue to dominate the market for the foreseeable future, but M2M deployments are increasingly reaching consumers directly. New consumer-facing applications and business models are emerging in the consumer electronics, connected home, connected car, and wireless health and fitness industries.
Connected Cars
The enterprise telematics industry laid the groundwork early on for today’s connected car market, which itself came to consumers relatively early. General Motors (GM) has been offering connected vehicle services to its customers through OnStar since 1996.
The core service feature of connected cars (or “consumer telematics”) is connecting passengers to a live agent in an emergency, and some models include collision sensors that will automatically notify agents via the in-vehicle telematics system. Newer offerings allow drivers to remotely control certain vehicle systems (e.g., A/C, door locks), locate their vehicle, and receive directions.
Not every connected service is enabled by an in-vehicle cellular radio. Many OEMs leverage the connectivity the passenger brings into the car via a mobile phone.
There are pros and cons to both approaches, but as this market matures, most OEMs will take a hybrid approach. Embedded cellular radios provide reliable connectivity for the most important use cases such as emergency and roadside assistance, while smartphone-enabled connectivity ensures a steady stream of the latest and greatest consumer apps.
M2M in Connected CE Devices
Multiple device categories, including smartphones, gaming consoles, and tablets, have some form of embedded wireless connectivity. The growing connected consumer device ecosystem presents operators with distinct opportunities to generate new revenues. Yet MNOs (mobile network operators) are already facing a network crunch due to booming mobile data consumption, and they are increasingly dependent on alternative wireless communication technologies such as Wi-Fi to handle data offload.
Three different models, which leverage cellular-embedded CE devices on market, highlight the opportunities and risks of entering the connected CE space with an M2M solution.
In the first model, MNOs can support connected CE from a B2B2C approach, typical of the M2M market. Rather than selling mobile data plans for CE devices with embedded cellular modems directly to consumers, carriers can instead sell network access to device manufacturers. For device manufacturers, this model can differentiate a product and extend device functionality to include anytime/anywhere connectivity along with connectivity-enabled services. Instead of charging consumers directly for mobile broadband connectivity, CE OEMs can bundle connectivity fees into the price of the device.
Amazon established this model with the success of its Kindle e-readers. Specifically, the 3G Kindle models connect across AT&T’s network so that consumers can download content without worrying about the availability or price of an Internet connection. But this model has limited applicability to other CE devices.
In the second model, embedded personal navigation devices (PND) provide a variation of the B2B2C approach. Operators sell network access to PND manufacturers in a typical M2M model, but the OEM then charges consumers for the data usage. For operators, this is a traditional M2M play and an opportunity to monetize unused network resources.
In the third model, MNOs monetize mobile data consumption on mobile devices by charging consumers directly. Typically, MNOs offer connected CE device data plans without contracts, using instead a pre-paid offering (Sony PlayStation Vita, Apple iPad) or billing usage rates to an account (Apple iPad, Samsung’s 4G Galaxy Camera).
The Connected Home Space
Consumers’ desire for anytime/anywhere connectivity is spreading to other areas, especially in the connected home space, which will be an important and potentially very valuable segment. Consumers recognize the appeal of an air conditioner with monitoring capabilities in order to control energy costs. Lights and other household white goods also score high for consumer interest in monitoring capabilities.
In the North American market, operators with fixed-line businesses are leveraging their footprint to offer connected home systems using short-range wireless solutions and IP-connected gateway devices (e.g., Verizon Home Monitoring and Control, AT&T Digital Home). As MNOs look to their future involvement in the connected home, they will experiment with ways to encourage uptake of cellular-embedded connected home devices.
M2M Health Market Drivers and Deployment Strategies
In the healthcare industry, M2M connectivity offers a variety of benefits, from improved care to lower costs to more efficient services. Parks Associates believes that the aging-in-place market and home-based diagnostic & monitoring market represent the two biggest opportunities for carriers in the consumer M2M health space.
Two distinct trends are driving these opportunities:
1. People are living longer but not necessarily healthier. The aging population is a global phenomenon, and incidences of chronic conditions are high in most developed countries and on the rise in major developing nations. The consumer desire to age at home drives demand for intelligent sensor systems that enable at-home self-care.
2. Rising healthcare costs are pushing care delivery to cheaper alternatives that are also patient-centric and convenient to access. Use of telehealth solutions and services will consequently increase and help drive demand for connected medical devices for diagnosis and monitoring.
To drive growth in M2M health services, leading carriers have dedicated sales teams to this sector, targeting hospital CIOs, durable medical equipment (DME) departments of large health organizations, medical device manufacturers, and leaders of health service organizations ranging from hospital ICUs to assisted-living facilities.
Within the healthcare sector, Parks Associates divides M2M applications into two major categories:
1. Patient-centric M2M applications enable devices and services that directly benefit a patient’s health and safety needs
2. Business-centric M2M applications improve business functions for healthcare providers
Most carriers are pursuing opportunities in both categories, but overall they have allocated more sales resources to the patient-centric M2M market. Patient-centric M2M solutions have higher volume potential with better margins from high-value applications than business-centric solutions, but they also pose a higher liability risk and are subject to more regulatory red tape.
While not all solutions will include M2M connectivity, some market segments—like the personal emergency response systems (PERS) market—are leading the way. Most PERS product vendors and service providers currently offer, or will develop in the near future, cellular-connected PERS products. These providers are leveraging cellular capability in PERS base stations to widen the market to households that have ditched landlines. Additionally, integrating cellular modules inside the PERS panic button extends its range from in-home only to anywhere/anytime coverage.
Market Outlook and Growth Areas
The connected car space provides the most compelling areas of M2M growth for mobile carriers.
All major auto manufacturers design vehicles for global markets, and MNOs are in a good position to leverage their established relationships with module manufactures, app developers, and consumers to provide auto OEMs with valuable integration services, thereby generating service revenues on top of network access fees.
For connected CE, these devices tend to consume too much mobile data to be successful on an M2M model. The Kindle success story is unique, and OEMs are more likely to leverage the PND model, where consumers pay the OEM for access to connected services. At the same time, connected CE with embedded cellular connectivity are facing heavy competition from smartphones and tablets, so cellular-connected CE as a top M2M growth area in the near term is unlikely.
Similarly, the connected home for now will continue to be a mix of different technologies, including Wi-Fi, Z-Wave, and ZigBee along with a minority of cellular-embedded solutions.
The M2M opportunity in the consumer health market requires patience and focus from mobile operators. The space is in transition, with new players such as CardioNet, Vitality, and IDEAL LIFE challenging established market leaders like Philips, Medtronic, and Linear, but these health business clients value cellular coverage and quality of service. They need a network operator that can cover patients living in rural areas, provide strong connections for timely reporting, and ensure network reliability in life-or-death situations.
Overall the steady growth in the M2M market over the past decade has piqued the interest of mobile network operators. Operators participated in the early development of the M2M market primarily by wholesaling network access to other specialized network providers, but now operators see M2M as a way to diversify their revenues and provide valuable business services to large enterprise clients. Many Tier 1 operators are building out their internal M2M businesses and seeking strategic partnerships with M2M vendors. This increased attention from operators will benefit all M2M players as the market gets a boost from operators’ resources, scale, and marketing power.
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